The Economic Record of the McCain Presidency

If Republican John McCain had been elected president in 2008, he would have pushed for (and presumably gotten through Congress) a big stimulus package that consisted of increased government spending as well as tax cuts. He would have reappointed Ben Bernanke as chairman of the Federal Reserve. And he would have inevitably presided over a pretty rotten economy and an exploding federal deficit.

Something similar would have applied if Mitt Romney and not McCain had been the triumphant Republican. The Bernanke reappointment was a no-brainer, and the economic headwinds faced by the U.S. in early 2009 were so strong that no imaginable set of policies could have avoided a deep and long recession that blew a hole in the federal budget. As for stimulus, top Republican economists were calling for it before the election (“The only way to prevent a deepening recession will be a temporary program of increased government spending,” McCain adviser Martin Feldstein wrote in The Washington Post in October 2008; once the Obama proposal took shape, Feldstein even complained that it wasn’t big enough).

A Republican stimulus would have looked different from the Obama version — Feldstein wanted lots of the money to go to defense; Glenn Hubbard, who advised Romney, was pushing for a government program to lower mortgage rates. And a GOP administration would presumably have wanted permanent tax cuts aimed at high earners and corporations, not the mostly temporary cuts aimed at the poor and middle class found in the actual stimulus plan.

Beyond that, a Republican president wouldn’t have pushed for a big expansion of health insurance, as Obama did, or threatened an end to tax breaks enacted during the Bush years for those making more than $250,000 a year (which Obama has threatened, although he and Congress still haven’t let the cuts expire). But monetary policy in a McCain administration would have been the same, the financial system cleanup would likely have proceeded along more or the less the same path, and the broad lines of fiscal policy would have been similar — if anything, McCain would have had more fiscal leeway, because the spending-hating Tea Party wing of the GOP probably wouldn’t have made big gains in the 2010 midterms with a Republican in the White House.

I recite this alternative history because, if you want to evaluate the Obama administration’s record on the economy, you have to have some standard to compare it to. To believe that a hypothetical McCain (or Romney) administration would have performed much better, you’d have to believe that the looming arrival of Obamacare and the uncertainty over taxes on high earners have significantly depressed the economy, and that different tax cuts, lots of defense spending, and/or a mortgage subsidy could have stimulated it far more than the Obama stimulus did. My sense is that while these policy differences surely would come to matter over time (my former Time colleague Michael Grunwald makes a pretty convincing case in his new book, The New New Deal, that the infrastructure projects in the Obama stimulus will be reshaping the economy for years), over one presidential term they wouldn’t have a big impact on GDP growth or the unemployment rate. Which also means I don’t think short-term economic performance in a McCain administration would have been significantly worse. The vast majority of the trillions of dollars of economic stimulus emanating from Washington over the past four years came from the Federal Reserve and from the federal deficits that ballooned automatically as tax receipts fell and demand for government aid grew. The differences in hypothetical McCain economic policies vs. actual Obama ones fade into relative insignificance beside that.

Of course, over the past four years Republican economic opinion has shifted rightward, so one might want to consider another alternative world — call it DeMintia — where all the big banks were allowed to fail, government spending was cut dramatically, and the Federal Open Market Committee was replaced with a simple gold standard. Or then there’s Krugmania, in which the stimulus bill passed in 2009 was much bigger and the Fed more aggressive. Or SimpsonBowlesia, where the tax code has been reformed and simplified, boondoggles like the home mortgage interest deduction have been removed, and the federal budget set on a medium-term path to solvency. My guess is that in DeMintia unemployment would be well above 10%, in Krugmania it would be at 7% but lots of people would still be complaining about the “failed stimulus,” and in SimpsonBowlesia it would be about where it is now (8.3%), and every last officeholder who voted for the reforms would have had to leave politics for reasons of terminal unelectability. But all these are unrealistic scenarios — the politics of 2009 wouldn’t have allowed for them.

A more helpful comparison might be to assess the U.S. economic record over the past four years against that of the world’s other biggest, richest economy — Western Europe. Unemployment has fallen faster in the U.S., and GDP has grown faster. The simplest explanation is that the U.S., as the country that prints the world’s reserve currency, has had more freedom to run an expansive fiscal and monetary policy than European leaders who have to either worry about markets losing confidence (the UK) or abide by the recessionary strictures of the Eurozone. This freedom will eventually be taken away if we abuse it (keep abusing it, some might say), but over the past four years any halfway reasonable group of economic policymakers would have taken advantage of it to run big, stimulative deficits and loose monetary policy.

None of this is to say that there aren’t dramatic differences in the economic priorities of Mitt Romney and Barack Obama. But you can’t really evaluate them by looking at the economic performance of the past four years.